The iron ore contracts on the Singapore Exchange tumbled more than 3 per cent to below US$40 a tonne during the session. The January and February contracts traded US$39.67 a tonne and US$38.85 respectively.

On the onshore market, the most active iron ore futures on the Dalian Commodity Exchange slumped 3.6 per cent to 293.5 yuan (S$64.77) a tonne by close after touching their weakest since July 9. Prices have lost 34 per cent since the beginning of this year.

Local steel mills are expected to step up output cuts due to deeper losses and shrinking demand, as China's economy cools and construction activity slows in the country, forcing steel mills to cut inventories of the raw material.

Market voices on:

"Chinese steel mills are not restocking iron ore as they are suffering extreme tightness in liquidity and deeper losses from continuous declines in steel prices," said Xia Junyan, an analyst with Everbright Futures in Shanghai.

"Steel demand keeps shrinking, but mills haven't cut output quickly enough, dampening steel prices." The benchmark rebar futures contract for May delivery on the Shanghai Futures Exchange fell to as low as 1,621 yuan a tonne, touching the lowest in decades, before closing 2.5 per cent lower at 1,626 yuan. Rebar prices have lost 41 per cent so far this year.

Prices of steel billet, a semi-finished steel product that is widely watched by traders as an indicator for broad steel market, dropped 20 yuan to 1,480 yuan a tonne on Monday after dropping 40 yuan over the weekend, traders said.

The sharp drop in billet prices has fuelled worries that some small steel mills may be forced to shut down permanently.

Iron ore for immediate delivery to China's Tianjin port slipped 0.2 per cent to US$43.50 a tonne last Friday, according to the Steel Index. That was near US$43.4 hit on Nov 24, the lowest indices started being compiled in 2008.